Zillow’s impact on the real estate industry

Since launching in 2006, Zillow has upended the real estate industry. It has taken real estate from the multiple listing service (MLS) directly to consumers, often to the displeasure of real estate agents and brokers.

Let’s take a closer look at how Zillow has shaped the real estate market over the past decade, and where it’s taking real estate next.

What is Zillow?

Zillow describes itself as a real estate marketplace. It is best known for providing information on homes listed for sale directly to potential homebuyers, largely bypassing the need for an agent’s access to the MLS. Zillow pulls listings from MLS sources nationwide and other syndicated sites. Homeowners can also manually input for sale by owner (FSBO) listings.

Further, it houses a database of more than 100 million U.S. homes not currently listed for sale, including basic facts on each home and their sales history.

Since its launch as a media company reliant on advertising dollars, it has grown into much more. Zillow connects potential homebuyers and sellers with local real estate agents and mortgage providers. It provides educational content focused on consumers, including buyers, renters and sellers. Agents can promote themselves on Zillow, making themselves accessible to thousands of local consumers, through online question-and-answer forums or through straight advertising.

Most contentious for real estate agents, Zillow provides a Zestimate for each home in its database. Agents vocally dislike Zillow’s home value estimates because they are based on algorithms, which can be less accurate than data provided by local real estate experts. An incorrect Zestimate can cause unrealistic expectations for sellers and homebuyers alike.

As Zillow has grown, it has acquired several other real estate aggregators, including:

Trulia;

com;

StreetEasy; and

hotpads

Collectively, Zillow and its subsidiaries are known as Zillow Group.

Why do agents dislike Zillow?

Real estate agents and brokers have long had a prickly relationship with Zillow. Before Zillow hit the scene, homebuyers and sellers had very little direct access to listings. Now that listings are so easily available to the public, agents are feeling the pressure of potential irrelevance. But they needn’t be too worried.

That’s because there is so much more to buying and selling than access to listings. Agents know this, and consumers do, too. This is evident by fellow listing aggregator Redfin’s first experiment in real estate brokerage services.

Redfin’s first business model was to provide clients very little guidance. Its brokers and agents helped with documents and gave clients open access to local listings, but not much else. This business model did not gain traction — buyers and sellers wanted more personal guidance from their agents, even if it meant paying a higher agent fee. So Redfin hired more agents in order to provide more personalized service and increased its fee structure. This model where clients receive more attention has been a greater success for Redfin.

The lesson learned? Agents are more than just the listings they provide. Buyers and sellers are completing the biggest financial commitments of their lives — of course they prefer professional guidance. But still, the negative agent perception of Zillow and other listing aggregators persists.

Some of these negative feelings are due to the other reason agents have a problem with Zillow — the infamous Zestimate. Agents struggle to convince buyers and sellers that their personal valuation of property is more accurate than the dollar amount produced by Zillow’s algorithm. Competing with perceptions created by inaccurate Zestimates is a major headache for agents.

Considering all the negativity directed at Zillow from agents, you wouldn’t expect to hear about agents pouring tons of money into the listing aggregator. Right?

Where the money is

In 2017, Zillow’s revenue (minus certain expenses and costs spent on litigation) totaled $1.1 billion, increasing 27% from 2016. This money is fueled by the 151 million unique users who use Zillow’s websites and mobile apps each month. But these users don’t pay to use the site — rather, their presence draws other moneymakers, which produced in 2017:

$762 million from agents and brokers who paid to be Premier Agents and advertise their brokerage in search results;

Who are these real estate agents who have bucked their industry’s expectations and put their lot in with Zillow? They are industry professionals who have chosen the carrot over the stick — they’ve found that working with Zillow is more beneficial than fighting it.

The impact is in the numbers

Compare Zillow Group’s roughly 115 million unique users to its competitor, Realtor.com, which receives 37 million unique monthly visitors as of 2016, according to the Mercury News.

Realtor.com is owned by the National Association of Realtors (NAR). When it was first launched a decade prior to Zillow it was only accessible by real estate agents who paid to be members of their local association of realtors (AOR) and used the Realtor® designation. Sort of like a nationwide MLS.

Now, Realtor.com claims to be the “most comprehensive” source of real estate listings available publicly.

However, remember that Zillow pulls its listings from the same MLS and other syndicated sources that Realtor.com does (on top of the FSBO listings only available on Zillow). Granted, listings may be delayed up to 24 hours before appearing on Zillow. But for the millions of homebuyers and sellers choosing to use Zillow over Realtor.com, this brief lag is made up for by Zillow’s format and ease of use.

Still, many agents continue to prefer Realtor.com (sanctioned by NAR) over the outsider, Zillow.

Tomorrow’s successful agents: today’s innovators

Zillow has made more than a dent on the real estate industry — it has moved real estate from an exclusive activity to one that is open and accessible. Buyers and sellers have gotten behind this model. Now real estate professionals are following suit.

Agents who have resisted Zillow in the past because of fears of irrelevance are coming to terms with the company’s oversized presence in the market. Well before clients contact an agent, they look at Zillow. So why shouldn’t a proactive agent advertise themselves on Zillow, too? The answer is clear.

When agents embrace innovation in the housing market, their chances of becoming obsolete decrease. The question for an agent on the fence about Zillow is — will you follow the clients? Or be content with the smaller market presence provided by other methods of reaching clients?

Where Zillow is taking the industry

What’s next for Zillow, and by extension, the real estate profession?

In 2018, Zillow is currently attempting to improve its Zestimate feature. Their Zestimate is currently delivering results within an accuracy range of 4.2%. They want to shrink this range so the Zestimate is more accurate.

Beyond what a home is currently worth, Zillow is searching for a solution to accurately predict a home’s future sale price. If they are able to introduce a successful way to predict future home values, they will become an invaluable resource for homeowners and agents alike. The ability to plan on a future sales price will improve a homeowner’s or investor’s investment outcome.

But in 2018, we are following several years of rising home prices. This begs the question — what happens when Zillow’s price forecasts predict falling home prices (assuming their algorithm allows for a declining market)? Will homeowners rush to list their home, creating excess inventory and making the home price decline sharper than predicted? Is too much knowledge in this case a bad thing?

We’ll have to wait and see. Agents and brokers: do you think Zillow’s Zestimate is a bigger problem or benefit for homebuyers and sellers? Share your thoughts in the comments below!

Editor’s note — This article was written in response to a reader’s request to learn more about Zillow’s impact on the housing industry. Do you have a topic you’d like to see turned into an article? Email your idea or question to editorial@firsttuesday.us.

8 Comments

Mike
on April 6, 2018 at 6:06 pm

Give me a break!!! My home value fluctuations of $100k up, then down in a 2 month period, on a $400k home is ridiculous!
There is no algorithm for guessing but there is one for BS. You’ll find it listed on my toilet paper roll.

Zestimates are great conversation starters with sellers and buyers. Zillow has done more for our bottom line than NAR ever has or will. Don’t fight the current of the river, learn to run with it. Disruption is inevitable in any industry that is fragmented or inefficient. Granted it does feel like armchair experts and platforms are plentiful in real estate these days but when the tide rolls out we will see the value proposition of the truest professionals in this industry shine once again. Hope to still be there when those days do eventually come to pass. Been in this industry indirectly and directly for 20 years. Not a kid and not a dinosaur but know that technology is a threat to the status quo of many brokerages and agents that think this industry is still in 2003. My two cents

Zillow is pure BS. They have no idea what property values are ,what upgrades a home has ,not even up to date information.Most of their values are based on when house was built or foreclosed on and there is nothing like the accurate hands on work of the Listing agent who does his/ hers Due diligence and delivers to a seller Realistic values based on actual inspection, recent sales and whose agency is Only for the Vendor . Agency here is such a a sham .. Zillow is simply another blood sucking company that lures agents in because so many people believe in their relevance. The only true way to test the value of a property is Sale by Auction with a Reserve set on an accurate valuation. Unfortunately most people in the US view Auctions as a “Fire Sale “, rather than view the method as the ultimate arms length transaction. Unfortunately the big banks here control everything and hold up sales of property “under contract ” with their rules for 30-90 days ,appraisals taking weeks and too many in out regulations to close escrow which again is BS.These are tactics to put pressure on the Vendor to bend to pressure . Buyers should be fully pre- qualified BEFORE attempting a purchase . And there fore transactions should close in 7-10 days period . This is why in so many places across the country Real Estate is in the doldrums or being manipulated by Lenders and companies like Zillow. Agency also needs a big overhaul . The Listing agent is only the agent for his Principal period

Zestimates are great conversation starters with sellers and buyers. Zillow has done more for our bottom line than NAR ever has or will. Don’t fight the current of the river, learn to run with it. Disruption is inevitable in any industry that is fragmented or inefficient. Granted it does feel like armchair experts and platforms are plentiful in real estate these days but when the tide rolls out we will see the value proposition of the truest professionals in this industry shine once again. Hope to still be there when those days do eventually come to pass. Been in this industry indirectly and directly for 20 years. Not a kid and not a dinosaur but know that technology is a threat to the status quo of many brokerages and agents that think this industry is still in 2003. My two cents

Zillow, Redfin and other similar services are the future. Paying 6% commissions to sell a property are the past. Zestimates and other automated valuation models will only get better and better. Fighting this type of progress never works.

Zillow shouldn’t try to do a Zestmate at all!
Only the agent who physically walks through the property, knows the area sales comparables and has experience can most accurately determine a value.
Zillow will never have the proper information without physically walking through the property.
Sellers NEED experienced agents especially when the market shifts to a buyer’s market or even a normal market.

Well, some chiefs threw the indians relevance under the bus in the hopes of collecting $1B+ down the road. How sad that they only got a little over 10% while the peons are left to deal with the consequences. Now I wonder what would happen if Zillow became our MLS source. No license required, no code of ethics, just a $$$pact with the devil and a fistful of dollars to call ourselves successful professionals. Gee, maybe we could get some relevance back after all.

Great Article! I think the state and local Realtor organizations across the country (Arizona is a good example, but others follow) that are so intently rewriting their Residential Real Estate Sale Agreement forms to try to exclude any traditional due diligence duties to their clients ought to learn from the Redfin experiment (and its quick reversal by Redifn when it failed) noted in the article. Once the involvement of the Realtor in the deal OTHER than simply listing, scanning the MLS and filling in blank lines in the paperwork was removed by “agent talent and skill waivers and disclaimers” that rattle on for 1 or 2 pages, clients who sought and expected hands-n work beyond that that went elsewhere. The Realtors’ push to limit its role to just desk and pencil work are assuring their own irrelevance and have hurried the success of the electronic marketplaces and networks like Zillow. I do not think a “wised up public” will pay 5-6% commissions for work my fully computer-literate 11 year old grand daughter could do. To remain relevant and worth their cost, Realtor (licensees generally) have to be there arranging and conducting property and economic analyses and guidance for their clients and customers. The only reason more clients have not fled the due diligence cope-outs and gone to Zillow is they do not know–after all of the promotional hoopla about Realtors all being “knowledgeable about every aspect of buying or selling real estate” and “firmly on their team”–that they are, in fact, an orphan in the very analyses process they bypassed Zillow and came to the licensee to get. What happens when they don;t get it and finally find that out? Or when Zillow engages licensees in each state for a flat fee to do hat due diligence for a heck of a lot less than 6-7%? (Don’t ;look now, but a service like that is in the works now). It will be Armageddon for the lazy. And justly so. As my first broker told me, “..to earn more, actually be worth more..”

Featured Comment

Zestimates are great conversation starters with sellers and buyers. Zillow has done more for our bottom line than NAR ever has or will. Don’t fight the current of the river, learn to run with it. Disruption is inevitable in any industry that is fragmented or inefficient. Granted, it does feel like armchair experts and platforms are plentiful in real estate these days, but when the tide rolls out we will see the value proposition of the truest professionals in this industry shine once again.